Southeast Asia’s rapid economic growth has positioned it as the fourth largest exporting region worldwide and one of the largest energy consumers on the planet. As the region seeks to sustain its economic rise, the focus has shifted towards energy transition in Southeast Asia, embracing the adoption of renewable power sources and the mitigation of climate change. The ASEAN countries, along with the rest of the world, must now prioritize integrating energy transition into their operations as they look to meet renewable energy targets.
Challenges in Energy Transition Target in Southeast Asia
The 2015 Paris Agreement insists that countries must now look for renewable energy alternatives and introduced Nationally Determined Contributions (NDCs) as action plans to set country targets that mitigate greenhouse gas emissions. The ten ASEAN countries continue to face challenges in not only meeting their individual targets but the collective ambition of achieving Net Zero status by 2050.
To overcome these challenges, the ASEAN Power Grid (API) emerges as a promising solution, facilitating renewable energy trading among the countries. This collaboration allows for the offsetting of weaknesses and the creation of a self-sustaining region powered by renewable sources. However, ensuring a reliable supply-demand balance remains a significant hurdle due to the intermittent nature of renewable energy, such as wind and solar power, which raises concerns about reliability. Additionally, as populations rise, the demand for electricity is projected to increase by 6% annually, making it unlikely to achieve a consistent output.
Considering the predicted rise of the regional GDP to $20 trillion by 2040 and the continuous 3% annual increase in energy demand until 2030, the transition from fossil fuels to renewable energy is a formidable task. ESC’s expertise in compliance, international standards, and understanding regulatory frameworks enables them to provide valuable guidance to organizations in the region, assisting them in navigating the complexities associated with these transformative changes.
Green Financing: Addressing the Lack of Investment
The affordability of renewables has always posed a barrier to Southeast Asia’s energy transition, requiring an annual investment of $190 billion to achieve its climate goals by 2030. This is a serious barrier, as governments in the region currently only fund approximately 60% of renewable energy projects. To scale up renewables, other forms of financing are needed.
Green financing, a financial plan structured to create a better environment and a sustainable future, offers a solution. It often relies on funding through green bonds, where investors provide monetary capital for a fixed return. Organizations like the World Bank issue loans to governments and organizations for environmental and sustainability projects. The work that ESC carries out with governments, financial institutions, and private organizations provide multipronged advantages for advancing renewable energy in Southeast Asia. We support financing through green bonds, demonstrating that introducing renewable energy is not always a financial burden. Moreover, our expertise ensures the success of green financing projects, maintaining a strong return on investment associated with green bonds.
Overcoming Regulatory and Investment Barriers
Despite Southeast Asia’s commitment to phasing out fossil fuels, private investment into the region’s renewable energy sector remains scarce. The region still prioritises fossil fuel generation as rigid purchase agreements continue to force electricity production via non-renewable sources. This has caused hesitancy amongst governments in bringing about the regulatory reform needed to advance towards a renewable energy model. As of 2020, 50% of private capital investment was contained within fossil fuels and little progress continues to be made as the lack of regulatory reform continues to create significant financial and legal requirements for investors when undertaking renewable energy plans. However, with ESC’s assistance, organizations/investors can benefit from thorough due diligence to evaluate the financial viability, assess risks, and identify opportunities for investment into the renewable energy projects.
The collective benchmark set by the ASEAN countries is for renewable energy to account for 35% of its power capacity by 2025. The creation of new electricity networks is seen as the area that will be most pivotal in meeting this target, but this will undoubtedly come at a large cost, emphasising again the need for private investment. ESC continues to lead the way in making this a reality, having recently gaining permission for an energy producer to construct a wind farm in Java Island that will account for 23% of Indonesia’s electricity by 2025. Our team of experts possess an extensive knowledge of the region’s regulations, allowing us to not only give our client smooth transition into Indonesia’s renewable energy landscape but to also make great strides towards the 2025 target.
Empower Your Renewable Energy Journey with ESC
ESC is involved in a total of 15 GW renewable energy projects across Asia, and we pride ourselves on tailoring our services to what each client requires. Do you want to improve your climate action game and bring about further energy transition in Southeast Asia? Get in contact and let’s see how ESC can assist you.